Temporary Buydowns: The 2-1 and How It Works
A temporary buydown lowers your interest rate for the first year or two of the loan, then steps it up to the permanent rate. The best-known version is the 2-1 buydown: your rate is two percentage points lower in year one, one point lower in year two, and the full rate from year three on.
How it is funded
The cost of the reduced early payments is covered up front, often by a seller as a concession to help sell the home, or sometimes by a builder or the lender. The money is placed in an account that subsidizes your lower payments in those first years. It is a real benefit funded by someone else.
When it makes sense
- You expect your income to rise, so the lower early payments ease the start.
- A seller is willing to fund it as a concession — found money for you.
- You believe you may refinance before the rate steps up, if rates fall.
- You want breathing room in the early, expensive years of ownership.
If a seller offers a concession, compare using it for a 2-1 buydown against using it to permanently buy down the rate with points, or to cover closing costs. The best use depends on how long you will keep the loan — we will run the comparison.